Competitive or collaborative? Customer concentration and real earnings management

Abstract

Purpose

Emerging markets are characterized by weak institutions and strong relationships, which give rise to different market characteristics in supply chain relationships. This study investigates the impact of customer concentration on suppliers' real earnings management.

Design/methodology/approach

Based on China's relationship-based transaction, this study selects 2007–2019 Shenzhen and Shanghai Stock Exchange A-share manufacturing listed companies as the research samples. The empirical analysis is derived from the ordinary least square regression model with industry and year fixed effects, and cross-sectional analysis is used for further analysis.

Findings

It is found that the higher the degree of customer concentration, the more likely a company is to engage in real earnings management mainly through discretionary expenses instead of accrual-based earnings management. Further research shows that when suppliers provide customers with higher commercial credit and make more relationship-specific investments, and when major customers are also major suppliers, the effect of customer concentration on real earnings management is more significant. It can be seen from the results that high customer concentration is beneficial for suppliers to cooperate with major customers in emerging markets.

Originality/value

This research expands the relationship between customer relationship-based transaction and earnings management from the perspective of collaboration. These conclusions are of great significance for market regulators to reform information disclosure related to customers and for participants to pay attention to the composition of major customers of the company.

Citation

Zhu, L., Chen, W. and Zheng, Q. (2024), "Competitive or collaborative? Customer concentration and real earnings management", International Journal of Emerging Markets, Vol. 19 No. 8, pp. 2091-2114. https://doi.org/10.1108/IJOEM-09-2021-1493